3QFY15 results were above our and market expectations, due to the handver of a Melbourne project. We downgrade to NEUTRAL with a lower TP of MYR3.50 (11% upside) as any M&A/restructuring plan mightbe delayed, given the economic challenges and political risk. Sales in the Battersea project would also likely be hit due to the sharp depreciation in MYR. The MYR4bn sales target may not be reached.

Above expectations. SP Setia’s 3QFY15 (Oct) results beat our and market expectations. This was mainly driven by the handover of the Tower 2 Fulton Lane project (AUD280 m) in Melbourne, which wouldcarry on to 4Q until the handover of this project is completed.

9M sales hit MYR2.54bn. New property sales for 9MFY15 achieved MYR2.54bn, compared with MYR1.79bn in 1H. Overseas sales made up 43% of the total. Full year sales (14 months) may have a risk of falling short of its MYR4bn target, assuming about MYR200m sales per month till Dec, due to the weak sentiment. We expect the overseas projects to face challenges going forward given the severe depreciation of MYR, the limited pool of wealthy Malaysian buyers , and Londoners being spoilt forchoice given the supply in the Nine Elms area. Also, almost a year afterits launch in Oct 2014, the take-up rate for the Phase 3A Battersea Power Station (BPS) project, with a steeper pricing of GBP1,700 psf, has only reached 54% (vs. 50% last quarter). Note that 92% of SP Setia’s borrowings are denominated in MYR, and hence forex risk on debt is manageable. Domestically, apart from the Klang Valley, which is relatively more resilient, 9M property sales for the Johor and Penang region fell by 54% and 34% YoY, respectively.

Forecasts. We adjust our FY15-17 earnings forecasts by 1-4% to reflect the timing of the handover of the overseas projects. Meanwhile, unbilled sales declined to MYR9.9bn vs. MYR11bn 2QFY15.

Downgrade to NEUTRAL. In view of the current macro headwinds and political risk, the previous M&A angle underpinning our previous Buy call may not hold anymore. Given the weak appetite for property stocks, any potential M&A/restructuring plan will likely be delayed. We therefore downgrade the stock to NEUTRAL with a lower TP of MYR3.50 (from MYR4.08) based on a larger 20% discount to RNAV (from 10%). Note that the company is changing its FYE to Dec from FY15 onwards.